Why so few of us can afford to retire

Some important reasons why members can’t afford to retire are that they either don’t contribute enough in the first place, they don’t start saving early enough, or both. When changing jobs, many members take their benefits in cash and start saving for retirement from scratch.

It’s important to note that the sooner you start saving for your retirement, the less you will need to save each month to reach your savings goal as you will be saving for a longer period. The National Treasury has previously reported that only 6% of South Africans will have enough money to retire comfortably. The state pension is currently R1,780 per month, which means that it is unlikely that you will be able to live off this in your retirement. You need to rely on your own savings, and especially the savings you make through your employer’s retirement fund, to support you in retirement.

If you want to maintain the same standard of living in retirement that you had when you were working, you need a sizeable amount of money. The current advances in technology and medicine means we are living longer and need to fund for an income to sustain us longer in our retirement.

NMG’s Actuarial Division has calculated that if you are 25 years old and want to get a pension income that replace 75% of your salary in retirement and provides a 50% pension income for a spouse from age 65, you will need to save 16% of your salary each month. The calculation assumes an investment return of CPI+5% and a salary increase of CPI+1% over your working career.

If you start saving at age 40 and want the same outcome using the same assumptions, you will need to save 31% of your salary each month. When done right, by the time you retire you should have saved enough to receive an income that can replace what you have been earning to cover your ongoing living expenses.

Always keep in mind that planning for retirement isn’t only for those approaching retirement age. Preparing now – regardless of your age – can make the difference between enjoying your retirement of struggling to get by.

Posted In: Blog